US Economy Grows 1.5% in Q2 as Federal Spending Drags GDP
Second-quarter GDP came in below forecasts, pulled down by declining federal spending and inventories, while core inflation held at 3.3%.
The U.S. economy expanded at an annualized rate of 1.5% in the second quarter, falling short of analyst expectations as a pullback in federal government spending and a drawdown in inventories weighed on overall growth, according to new data reported by CNBC.
The GDP shortfall was not driven by weakness in consumer demand or private-sector activity, but rather by two specific drags: reduced outlays from the federal government and a contraction in business inventories — factors economists often view as temporary or reversible, potentially limiting the long-term signal the number sends about underlying economic health.
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Separate inflation data added another layer of complexity to the economic picture. Core inflation, which strips out volatile food and energy prices, came in at 3.3% in June — still well above the Federal Reserve's 2% target, suggesting policymakers face continued pressure to hold interest rates at elevated levels or consider further tightening.
The combination of slowing growth and stubborn inflation puts the Fed in a difficult position, balancing the risk of overtightening an already decelerating economy against the danger of allowing price pressures to remain entrenched. Markets and analysts will closely watch upcoming labor and consumer spending data to gauge whether the Q2 slowdown marks a temporary soft patch or signals a more sustained deceleration heading into the second half of the year.
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